Supreme Court Awards $800,000 Deposit & Attorneys’ Fees to Purchaser

April 3, 2024 – In a 15+ page decision, the Supreme Court, Suffolk County (Hon. Maureen T. Liccione) has awarded a purchaser summary judgment on her claim for a return of her downpayment and attorneys’ fees, in Farrell v. Gardner, Index No. 613551/2022.  The case involved an $8 million contract to purchase a home in Sagaponack, NY, and, more specifically, customary “certificate of occupancy” (CO) and “as is” requirements found in many real estate contracts to sell Hamptons homes.  The home at issue was staged and shown with a finished third floor that included a bedroom and bathroom.  The purchaser paid an $800,000 downpayment on the contract, but the sellers, who had been aware that the third floor was illegal prior entering into the contracts, nonetheless agreed to deliver the premises in “as is” conditions, with a CO covering its improvements.  After the purchaser learned about the illegal third floor rooms, the sellers “gutted” the third floor by demolishing the bedroom and bathroom “and transforming the finished third floor into an enclosed unfinished attic space, all without permits.”  At the time-of-essence closing, the sellers insisted that they fulfilled their obligations under the contract by delivered the altered house and a 37 year old CO issued in 1985, before the illegal third floor conversion into a finished bedroom/bathroom space and before its subsequent gutting.  The purchaser, who appeared at the closing with the funds to complete the contract, refused to accept the property no longer in its “as is” condition, and without the promised CO.

In a thorough legal discussion addressing the interplay between the customary CO and “as is” contract requirements, the Supreme Court found “that: (1) Sellers breached the Contract by failing to deliver a valid and subsisting CO for the Property and could not deliver the Property in ‘as is’ condition at the closing, and (2) that Purchaser was ready, willing, and able to perform on the time of the essence closing date.”  The court agreed with the purchaser that the sellers were contractually required to deliver both a valid CO covering the buildings as they existed at contract and deliver the property in “as is” condition, but they failed to do either, because the 1985 CO was not valid on the day of closing and the property was no longer in its “as is” condition after the Sellers gutted the third floor.   Though the sellers argued “that it was impossible to deliver the house both in ‘as is’ condition and with a valid and subsisting CO,” the court found that this “argument actually underscores Purchaser’s claim that Sellers could not abide by the Contract terms requiring them to deliver the premises ‘as is’ and with a valid CO.”

After dismissing the sellers’ remaining arguments, the Supreme Court found that the purchaser was “entitled to reasonable attorneys’ fees and costs as the Contract authorized the recovery of attorneys’ fees from the unsuccessful party.”